I filed a personal chapter 7 bankruptcy in October of 2008. The bankruptcy was discharged in January of 2009. Since then I have gotten back on my feet and been able to save quite a bit of money. My lease on my apartment is running out and
I'll looking to capitalize on the great houses available in the area. My father has a bunch of cash and net worth as well a perfect credit.
My question is can I go and get a mortgage at this point with my father to cosign, or would he have to buy it himself and "rent" the property to me until I could purchase it on my own. The other mitigating factor in all this is that all the
foreclosures in this area are held up in land court, and despite my discharge happening in January, the mortgage company has still not assumed my old condo and auctioned it off.

Thanks,

J.
Worcester
Massachusetts

Answer:

Dear J.:

Thank you for your inquiry. The following is in response to your question:

A person who has had a Chapter 7 bankruptcy (liquidation) must wait until at
least two years have elapsed since the date of the discharge of the bankruptcy
before he or she can qualify for an FHA mortgage. In addition, you
must re-establish good credit and demonstrate a documented ability to
responsibly manage your financial affairs. Basically, this means you can
not have any late payments on any accounts since the discharge of
the bankruptcy.

It is possible to get a mortgage before the two years have elapsed, but not
less than 12 months, provided you can show that the bankruptcy was caused by
extenuating circumstances beyond your control. An example of an
extenuating circumstance would be you had extensive medical bills, and you
were out of work during hospitalization thus unable to pay your bills due to
no income. Loss of job, a failed business venture and divorce situations do
not qualify as extenuating circumstances.

If you plan on having your father purchase the property, allowing you to rent
it from him until such time as you are able to purchase the property directly
might run you into an “identity-of-interest” situation. An
identity-of-interest is defined as a sales transaction between parties with
family relationships or business relationships. In these cases, the maximum
you will be able to borrow or finance is 85% of the purchase price of the home
(85% LTV).

However, maximum financing above 85% LTV is permissible under the following
circumstances:

A family member purchases another family member's home as a principal
residence. If a property is sold from one family member to another and is
not the seller's primary residence, the maximum mortgage is the lesser of
either:

The 85 percent limit may be waived if the family member has been a
tenant in the property for at least six months immediately predating the
sales contract. A lease or other written evidence must be submitted to
verify occupancy.

An employee of a builder purchases one of the builder's new homes or
models as a principal residence.

A current tenant purchases the property that he or she has rented for at
least six months immediately predating the sales contract. (A lease or
other written evidence must be submitted to verify occupancy.)

A corporation transfers an employee to another location, purchases that
employee's home, and then sells the home to another employee.

So long as you rent the property from your father for at least 6 months,
and so long as a lease is provided along with evidence of the
renting of the property (copies of canceled checks, utilities are in your
name, not your father’s, etc.), you will be able to finance up to 96.5% of
the purchase price or value of the home.